The real estate project financing (PF) market shows signs of stability in overall volume, but liquidity issues persist in vulnerable sectors such as local and non-residential projects. Delays in sales revenue are translating into financial risks for construction companies due to PF refinancing and guarantee burdens.
According to the Financial Services Commission on July 20, the exposure to real estate PF at the end of the first quarter of this year was 169.8 trillion won, a decrease of 4.5 trillion won from the previous quarter. The new PF issuance amounted to 16.8 trillion won, an increase of 5.6 trillion won compared to the same period last year. Financial authorities noted that new funds are being supplied to sound projects.
However, detailed indicators remain concerning. The delinquency rate for PF loans rose to 4.65%, an increase of 0.77 percentage points from the previous quarter, while the amount of loans with significant or potential default concerns increased by 1.7 trillion won to 16.4 trillion won. This indicates that the normalization of PF is not uniformly reflected across all projects.
Market observers note a disparity in funding conditions between high-quality projects in Seoul and the surrounding metropolitan area and those in local, non-residential, and small construction firms. Funding is available for projects with verified locations and sales potential, while projects facing sales challenges often rely on bridge loan maturity extensions or support from affiliated companies.
A notable example is Shinsegae Construction, which has been developing its own brand projects such as Billiv Heritage, Billiv Lucent, and Billiv Radice in Daegu. However, initial sales rates remained in the 20% range, leading to increased unsold inventory burdens. Korea Credit Rating Agency assessed that delays in the collection of construction payments and funding needs related to PF guarantees have heightened Shinsegae Construction's financial burdens.
Last year, Shinsegae Construction reported an operating loss of 198.4 billion won and a net loss of 296.6 billion won due to the recognition of bad debts related to unsold and unoccupied sites after completion. As of the end of March this year, the amount of PF guarantees for contracted projects was 310 billion won, while the guarantee for interim payments from buyers was 342.4 billion won.
In response, Shinsegae Construction has sought to secure liquidity through the issuance of hybrid capital securities, the sale of its leisure division, and the securitization of construction receivables. This year, E-Mart resolved to conduct a capital increase of 500 billion won.
Non-residential projects also present burdens. Kumho Construction's exposure related to its Suwon officetel project is estimated at 214.8 billion won. Kolon Global's credit enhancement related to PF is about 1.4 times its equity, and the outstanding balance of loans related to maintenance and other projects is around 1.9 trillion won. The performance of sales and the speed of cash recovery for each project are expected to be key variables affecting future PF burdens.
Industry experts emphasize that the overall reduction in the PF market should be viewed separately from the liquidity challenges faced by individual projects. Even if new funds are supplied to sound projects, local, non-residential, and small construction firms may see their construction and completion schedules disrupted if the transition to main PF is blocked.
A real estate industry official stated, "If the transition to main PF is blocked for local, non-residential, and small construction firms, project schedules will inevitably be delayed. Support packages that include not just simple maturity extensions but also transitions to main PF, changes in construction companies, and adjustments to project structures are necessary."
* This article has been translated by AI.
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